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The invention is in the field of using a computer to select corporate stocks for investment.
Designed as a possible replacement for mutual funds for individual investors, the invention allows individual investors to put together their own diversified fund using low-cost trades. Because the individual buying shares of stocks is buying and owning the stocks directly, there is no chance of some of the xe2x80x98tax hitsxe2x80x99 that one takes with mutual funds.
For example: on day one, investor buys $10,000 of shares in a mutual fund. On day two, the mutual fund liquidates some assets acquired in the past and takes a tax hit. Our day one investor has not enjoyed any of the benefit of increase in price of the liquidated asset but takes the full hit of the tax consequence on the value of the mutual fund""s shares on day two.
The present invention allows the shareholder to avoid that tax hit and offers other benefits as well as will become apparent in the following discussion.
A user is connected to the Internet. The user connects to the portfolio management program (PMP) host computer through the Internet. The user reviews certain strategies and their historic performance. The information is transmitted across the Internet to the user. The information transmitted includes such information as historic performance, sample holdings, modeling how the particular strategy and its holding has performed in the past.
The user, after making appropriate reviews, makes a decision to purchase the names of the stocks in that portfolio. The owner of the PMP host computer collects a payment for this service. This price is preferably $29.95.
Now the user sees a list of stocks provided by the PMP host computer. If the user can then make the decision whether to accept or reject any individual stock in the generated list. For example, if the user rejects the tenth stock in a ten stock strategy, the PMP host computer presents the eleventh stock as a substitute which may in turn also be rejected. Once the user has approved the content of the proposed portfolio, the user enters an amount that the user will invest in accordance with the strategy.
If the strategy has 10 stocks, for example, and the user invests $100,000, the user will have $99,970.05 to invest in the 10 stocks or $9,997 per issue.
If the user already has an account with an online broker, then the owner of the PMP host computer will receive a one-time fee from that online broker when the user purchases the portfolio through the online broker. The one-time fee for referring to an existing account is preferably $30.
If the user does not have an account with an online broker, then PMP host computer provides suggestions to select an online broker. Once the user selects an online broker, then the owner of the PMP host computer will receive a one-time fee from that online broker in the amount of $150. Since online brokerages are currently spending about $400 for each account that opens with them, everyone wins. The present invention attempts to drive mid-tier investors online by providing low cost, tax savings, information, and control of the online portfolio. The present invention wants to make the average Morningstar mutual fund an expensive way to achieve the benefits of a diverse portfolio.
If the user does buy the stocks, the user is presented with a customizable portfolio screen showing all the holdings. This information is optionally stored on the user""s harddrive, on the PMP host computer, or preferably both. The user can then sign up for automatic notification of drop in price in certain stocks, place sell orders, etc. as necessary. In addition, the user can sign up for automatic proxy voting.
The user winds up with a balanced portfolio of stocks for $30. This is much cheaper than even the cheapest online brokerage charges, and much cheaper than those charges made by traditional brokers. The user""s balanced portfolio is akin to their own personal mutual fund, but without some of the disadvantages that plague those mutual funds.
First, the cost of creating and monitoring this diversified individual portfolio is dramatically less expensive than fees associated with other diversified portfolios like mutual funds. Currently, the average fee, called an expense ratio, of all diversified equity funds in the Morningstar database is 1.55%. An investor with a $100,000 investment in the average mutual fund, would face annual expenses of $1,550 before any commissions, sales load, or 12(b)-1 charges. The same investor using the present invention would face substantially lower total expenses, currently contemplated at approximately $60.
The next major advantage of the present invention is the potential for tax managing the diversified portfolio for the individual investor. One of the largest problems of mutual fund investment is the potential for embedded capital gains that will be distributed to all shareholders of record whether or not they enjoyed the gain from the stock being sold.
For example: on day one, investor buys $100,000 of shares in a mutual fund. On day two, the mutual fund liquidates some long-held security (e.g. 1990 Microsoft) and takes a tax hit. Our day one investor has not enjoyed any of the benefit of increase in price of the liquidated asset but takes the full hit of the tax consequence on the value of the mutual fund""s shares on day two.
The third benefit the present invention offers individual is that by creating their own diversified portfolio, they will not be affected by the actions of other shareholders. For example, on day one investor buys $100,000 of shares in a mutual fund. The next day, a sufficient minority of current shareholders of that fund decide, for whatever reason, to liquidate their holdings, the NAB of the fund would be materially affected as the portfolio manager would be forced to liquidate current holdings to meet the redemptions. Users of the present invention will face no such calamity because the diversified portfolio is unique to them.
The invention makes possible for the first time the creation of a diversified portfolio that can be selected, invested in, and monitored continually entirely on the Internet.
Accordingly, then the following are elements of the present invention: the method and apparatus for allowing a user to select strategies and stocks for an inexpensive trade, including: providing a host computer connected to a global computer network; providing said host computer with a portfolio management program; providing said host computer with storage where user account information may be stored; providing at least one user the opportunity to open an account with the portfolio management program owner; providing the user the opportunity to evaluate, select, and modify different methods to choose a recommended portfolio of stocks; providing the use the opportunity to evaluate a strategy""s performance over various periods of time; providing the user the opportunity to model the performance of a selected strategy with simulated data; providing the user the opportunity to model the performance of a selected strategy with historical data when said historical data is available; providing the user the opportunity to view the sample holdings of a selected strategy; providing the user a means for inputting the amount of money said user wishes to invest; providing means for calculating the number of shares of each holding that can be purchased through use of quote data; providing a performance option sheet, wherein the user has the opportunity to reject any or all stocks selected in accordance with a particular strategy; providing the user an opportunity to perform the purchase of the selected portfolio through an existing online broker account; providing the user an opportunity to acquire an account at an online broker; receiving from the broker a first referral fee if the user already has an account at that broker; receiving from the broker a second referral fee if the user does not already have an account at that broker; providing for the purchasing user a customized performance page; providing the purchasing user the opportunity to create alerts in the event that any or all stocks drop by certain percentages; providing the purchasing user the opportunity to elect to have the owner of the portfolio management program vote the proxies of any or all issues; providing the purchasing user the opportunity to receive an email reminding the purchasing user of any rebalance dates; providing the purchasing user a custom benchmark; providing the user the opportunity to customize the custom benchmark through the addition or elimination of certain indices and measures; providing the user the opportunity to accept the default version of the custom benchmark; providing means for storing the user""s custom benchmark on the local machine; providing means for storing the user""s account information on the portfolio management program host machine; providing the user means for adding user enhancements to the custom benchmark page; said enhancements including news, fyi, and alerts on each issue; a newcomer""s entry path with investment quizzes; and an experienced investor""s entry path.